What comes first in joint venture with new person?

I have a question about starting a JV with a person who I have only recently met and looking for advice on what comes first. I think a little background would be very useful: Basically, the other guy reached out to me a few months ago on LinkedIn about a venture. He is the business/product guy and I am a software engineer who can build the product for him. He has issued me with a mutual NDA which I will need to sign soon - That said, I have concerns about transferring of 50% of idea/IP to me if I enter into a partnership with him. We have discussed stuff at a high level and we are kind of both curious about next steps.

Some high level notes

He kind of wants me to build a demo for him in the interest of running a pilot in a local friendly business.

There is no type of formal agreement in place to cover any kind of outcomes.

I have only met the guy twice so far and chatted on the phone once along with exchanging a few messages.

While I have no reason to doubt his authenticity, I, by default don't trust people and need assurances etc before I start to spend any time / money on this.

He has told me he has a company (I can't find it in companies house) that "represents him" and that he would use it for the venture, and could give me 50% of said company. I would rather a new company.

He is kind of in a static position right now with the idea and connections to deploy said project.

There will be significant effort by me to build a product.

So my question is kind of simple. What comes first after two parties come together to help build a business. Do we formalise an agreement where we have a new company with equal shareholding and some kind of legal agreement between us. Because we don't know each other I think this is kind of required and may be costly. Considering there will be significant outlay by way of my time to build the product is it reasonable for me to request him to pay for formalising all of this stuff. I ask this because I will pay in time to build product and he also can't do anything without a developer to build product.

Feels like we are in a kind of catch 22 / chicken and egg situation. My feeling is that if the guy isn't serious about formalising the relationship then I may need walk.

It'll be wise to formalise a written agreement detailing what's required of each party - the rights and obligations thereof, and to undertake any venture through a new company (with an appropriate shareholding and shareholder agreement).

You are right in expecting to be paid for effort up front; be wary of "deferred payment" in form of equity or future salary as that is jam tomorrow.

You don't need paid legal services at this point; the process of developing a written agreement will allow you both to work out how you see the relationship working and identify obstacles and possible solutions.

Don't try to cover every single eventuality - the object is to develop a level of trust you are comfortable with, or realise that you will not be able to work together; ultimately, any contract can be challenged legally and interpretation tested in court, so don't get distracted by the illusion of a comprehensive, unbreakable agreement.

I speak from experience of setting up two working partnerships; one succeeded in development but then failed for external reasons, and one is a successful business... currently.

You are right in expecting to be paid for effort up front; be wary of "deferred payment" in form of equity or future salary as that is jam tomorrow.

You don't need paid legal services at this point; the process of developing a written agreement will allow you both to work out how you see the relationship working and identify obstacles and possible solutions.

Don't try to cover every single eventuality - the object is to develop a level of trust you are comfortable with, or realise that you will not be able to work together; ultimately, any contract can be challenged legally and interpretation tested in court, so don't get distracted by the illusion of a comprehensive, unbreakable agreement.

I speak from experience of setting up two working partnerships; one succeeded in development but then failed for external reasons, and one is a successful business... currently.

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Cool thanks.This isn't really a one off job with a deferred payment etc. The idea is that we go into business together with a 50% stake each in the company. If the company succeeds and makes a profit, we will both draw dividends/salary.

In the mean time, most of the work will be on me to build the software, which I am kind of ok with but with that in mind I don't think I should have to fork out for the writing of any agreements/incorporation or accounting advice etc.. what do you think?

I agree -- who do you think should pay for the writing up of any agreements etc?

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That's something to be discussed/considered/agreed between you.

The earlier advice (from 'Noah') about not at this point needing paid legal services is valid... an appropriate agreement can initially be informally agreed, beginning with a list of 'things we need to consider and provide for', the details of which can then be progressively included.

At the moment, you're akin to 'bloke walks into a bar'... 'sharing a toothbrush in the morning' or 'choosing new linen' come later - or not.

There's various options for 'protecting each of you from an unwanted (accidental/deliberate) scenario'... and you may prefer, rather than open with fixed ideas, instead work on a 'say what you want, and if I can agree I will' basis.

Too many 'approach business as business' rather than 'a relationship' - many really good businesses have genuine elements of 'family'.

I think the advice given above is wrong, you do need legal advice on drawing up the contract and shareholders agreement, the cost is minimal to start together in a proper agreement

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I agree - at a later point. It seems premature when the two parties do not yet even have an understanding of their working relationship - sort of like starting a romantic date with a pre-nuptial contract.

In the mean time, most of the work will be on me to build the software, which I am kind of ok with

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I honestly don't think you should be. Your time and skills are worth money now; maybe a reasonable compromise for you would be to charge only 1/2 on the understanding that the other half is your risk for the potential business. If your prospective partner is not prepared to put any money in now, effectively he values his "idea" infinitely more than your time and skills - which is unlikely to be the basis for a good business relationship.

Similar approach to cost of professional services for co. set-up, though this is more straightforward - a loan from directors to be paid back by the co.

The first (and last) thing you should is shake their hand and say 'thanks, but no thanks'.

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Possibly, but again seems premature; why do you think it is not worth exploring? It does have a little whiff of "you do all the work for free and I'll take all the profit (if there is any)" proposal, but it may be a genuine opportunity - worth talking about at least.

Possibly, but again seems premature; why do you think it is not worth exploring? It does have a little whiff of "you do all the work for free and I'll take all the profit (if there is any)" proposal, but it may be a genuine opportunity - worth talking about at least.

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Nope, I don't think it's premature.

Even if the guy turns out not to be a charlatan, the odds of them having a long standing, amicable partnership is against them. This forum is full of posts where partners have fallen out, and a lot of these are partnerships between family and friends. Two complete strangers have less of a chance.

Warning. My advice may cause a rash. Rely on forum advice at your own risk.

I understand where you guys are coming from but why is it such a big deal that I will be working on the app for 50% of the company. Surely this is how many tech startups start out. Two guys meet and co-found a company.

One is a business head and the other an engineer. There will be plenty of business development and sales to be done alongside the engineering. I'm not going to go and spend six months building an app to his specification. We will be very much following the LEAN principles and getting customers involved from day one. It will be equal effort and we will learn soon enough if the product is wanted or not by customers.

He kind of wants me to build a demo for him in the interest of running a pilot in a local friendly business.

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It's a case of risk : before the business idea has even been proven, you're doing tangible work, and he's doing... what for his 50%? If it is an unworkable business, you have put your time and skills in for no reward. Seems inequitable to me, and I have highlighted the phrase that makes me think neither of you see this an equal arrangement anyway - shouldn't there be an "us" in there instead?

Even if the guy turns out not to be a charlatan, the odds of them having a long standing, amicable partnership is against them. This forum is full of posts where partners have fallen out, and a lot of these are partnerships between family and friends. Two complete strangers have less of a chance.

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I share your aversion to partnerships in general. At the risk of going off-topic, I disagree that strangers have less chance, if only because one is much less likely to make assumptions about trust and competence of a stranger, whereas family-and-friends is a common trap.

He has told me he has a company (I can't find it in companies house) that "represents him" and that he would use it for the venture, and could give me 50% of said company. I would rather a new company.

Amazed no one has picked up on this..... The Companies House site makes it very simple to search both companies and individual directors.

If you are not finding the company or him as a director and he maintains that the company is a registered company, be afraid..... be very afraid.

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